Oil hits new high, Wall Street plunges

NEW YORK, June 27 — A barrage of bad news including yet another record high for oil drove stocks sharply lower Thursday, hurtling the Dow Jones industrials down nearly 360 points to their lowest level in almost two years.

The market also worried about fresh signs of trouble in the financial, high-tech and automotive industries. Negative analyst comments sent shares of General Motors Corp stock to their lowest point in more than three decades.

Oil futures shot past US$140 (RM455) after the head of OPEC predicted the price of a barrel of crude could rise well over US$150 this year and Libya said it may cut oil production.

That increases the odds that gasoline prices, which crossed a nationwide US average of US$4 a gallon weeks ago, will extend their advance, and that goods and services across the economy will get ever more expensive.

The Dow dropped 358.41 points, more than 3 percent, to close at 11,453.42 – its lowest finish since Sept. 11, 2006. Investors rushed for the safety of Treasury bonds, regarded as a haven when the stock market is in turmoil.

The blue-chip index is now 19 percent below its record close last October of 14,164.53.

Oil was far from the only worrisome factor driving stocks lower.

Citigroup Inc stock fell sharply after an analyst give it a “sell” rating and warned investors to expect less from the brokerage sector in an uneasy economy.

Disappointing forecasts from technology bellwethers Oracle Corp and BlackBerry maker Research In Motion Ltd further soured investors’ moods and made the tech sector one of the steepest decliners.

Broader stock indicators also fell sharply, although not to their mid-March lows. The Standard & Poor’s 500 dropped 38.82, about 3 percent, to 1,283.15, and the Nasdaq composite slid 79.89, or 3.3 percent, to 2,321.37.

The Dow and the S&P, which is off 18 percent from its highs of last fall, are close to the prolonged 20 percent decline that traditionally indicates a bear market. Many analysts would argue Wall Street has had a bear market mentality for months.

On Thursday, the unnerving forecast about oil prices raised the spectre of higher inflation and more damage to the economy.

OPEC President Chakib Khelil was quoted as telling a French television station that oil could rise to between US$150 and US$170 per barrel this summer before pulling back later in the year.

That and a falling US dollar helped send light, sweet crude as high as US$140.39 and to a record settlement of US$139.64 on the New York Mercantile Exchange. Rising oil has saddled nearly all parts of the economy with higher costs.

All the bad news overshadowed a report by the National Assocation of Realtors that sales of existing homes edged up in May for only the second time in the past 10 months.

It also wiped out any positive impact from the Federal Reserve’s widely expected decision Wednesday to leave interest rates unchanged.

And it drove home anew how much US companies stand to be hurt by the prolonged housing slump, the credit crisis and the soaring price of oil.

The great fear on Wall Street has been that rising prices and worries about their finances will force Americans to curb spending and reinforce the economic decline.

That fear was backed up by the latest reading on the gross domestic product. The Commerce Department said the economy grew at a 1 percent annual rate in the first quarter – a slight improvement from earlier estimates but still anaemic.

And that number does not reflect the impact of higher gas and oil prices that shot up further during the second quarter, which ends Monday.

“This is unfortunately kind of a slack period. We’re waiting for second-quarter earnings,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago, pointing to the uptick in housing sales. “Until then, we have this very negative attitude among investors and everyone seems to be latching onto negative news and shrugging off the positive news.”

Bond prices rose sharply. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.03 percent from 4.10 percent late Wednesday.

The dollar was mixed against other major currencies, while the price of gold, a hedge against inflation, jumped.

One analyst said the selling was aggravated by end-of-quarter window dressing, when institutions make trades designed to put their portfolios in the best light.

“Second quarter estimates are still declining,” added Alexander Paris, economist and market analyst for Barrington Research. “There might be some nervousness about the earnings season coming up.”

It was just a few weeks ago, when the Dow made a one-day dive of nearly 400 points, that the market tried to find its bottom after months of turbulence driven by the credit crisis and oil.

But when it became clear financial companies were still dealing with the aftermath of investing in billions in soured mortgages, and when the price of oil kept charging higher, it also became clear stocks weren’t on sure ground.

In other economic news yesterday, the Labour Department reported initial jobless claims remained flat last week at 384,000. Wall Street had been looking for a slight decline.

The Realtors, meanwhile, said existing home sales rose 2 percent in May, compared to analysts’ forecast of 2.2 percent increase. Few observers believed this was the start of an upward trend in home sales.

GM, one of the 30 stocks that comprise the Dow industrials, sank US$1.38, or 11 percent, to US$11.43. They sank as low as US$11.21 earlier in the session – tying the low reached on Dec 30, 1974, according to the University of Chicago’s Centre for Research in Security Prices. The centre adjusts prices for stock splits.

A Goldman Sachs analyst cut his rating on the stock to “sell” and lowered ratings on several auto suppliers.

Citigroup fell more than 6 percent, down US$1.18 to US$17.67, after Goldman downgraded it. It also downgraded Merrill Lynch & Co, which fell US$2.41, or about 7 percent, to US$33.05.

The forecasts from Oracle and Research in Motion dented the notion tech companies might be better able to weather the economic downturn.

Oracle, a maker of business software, warned that the traditionally slow summer months could prove particularly difficult this year. Research In Motion also issued a forecast that disappointed investors.